Last week, Kae Capital, an early-stage venture capital firm, closed its second fund at $53 million. Sasha Mirchandani, founder and managing director, tells Ranju Sarkar why he's bullish on consumers and consumer internet. Edited excerpts:
How will your second fund differ from the first?
It will be relatively similar. However, we will invest in non-tech, consumer-facing businesses in this fund. Also, we will invest up to a million dollars in the seed round, whereas we invested a maximum of $500,000 on this in our first fund. We can then double down in any one company.
You will invest 40 per cent of the fund in consumer internet. Do the volumes support creation of profitable consumer internet businesses in India?
Yes, we strongly believe the internet growth story in India supports the creation of multiple profitable consumer internet businesses. With the strong proliferation of mobile internet, we think the existing base of internet users will grow threefold in the coming few years. With rising disposable incomes, this creates strong demand for these businesses. Consumer internet businesses are often the traditional brick and mortar business done online, be it for financial services like lending and payments (Loantap, Trupay), in health care (1mg), e-commerce (Fynd) or marketplaces (Truebil).
Why are you bullish on the consumer space? What's the opportunity here?
We feel there is a lot of opportunity left in the consumer space. In spite of being such a mature market, a large number of new consumer brands succeed in the US markets, carving a niche for themselves. Similarly, we see a lot of white spaces and gaps which are not being served by the current large players in India. We feel large and successful companies
can target these and build a niche for themselves.
How has your first fund done in terms of exits or how have the portfolio firms done?
The first fund is tracking very well. We have completed five exits and there is a sixth one in the works, which should happen early next year. We have several companies
from that fund on their way to becoming winners — some are Porter, Hello English, Healthkart, 1mg and so on.
How is the fundraising environment, given that a lot of money for India was raised in the past two years?
The fundraising environment in India has been quite positive for smaller funds like ours.
When we raised the first fund, there was a lack of awareness of this asset class. So, we ended up getting the money mostly from global investors. However, in this fund, we managed to get a good chunk of the money from domestic investors.
Many overseas institutional investors have invested in the fund. What's their outlook towards India?
Overseas institutional investors are cautiously optimistic about India. It has been one of the few growth markets, worldwide.
However, the jury is still out on fund managers like us. The exit environment has certainly improved; however, a lot more has to be done.
Sidbi (Small Industries Development Bank of India) is playing a key role. How is it different from other institutional investors? What does it expect?
has most certainly played a key role for small funds like us. They are different from other institutional investors -- they have a hands-on approach, are very pro-active and extremely helpful to all the GPs (general partners/fund managers) they have backed. They also have very good understanding about the companies
we have invested in and provide insightful inputs from time to time. In fact, we have a Sidbi
representative on our investment committee and his inputs have always been invaluable for us in making decisions.
The past few weeks have seen many deal announcements. What could we draw from it and what's the outlook?
Yes, we've seen that market activity has picked up a very good pace in the past few months. Given that the announcements generally carry a lag of three to six months, the past few months has seen good activity in the start-up eco-system and we continue to be bullish on this continuing from here on.